Last year Axle Inc.reported net assets of $400,equity of $200,net income of $50,dividends of $10,and earnings retained in the period of $40.What is Axle Inc.'s internal growth rate?

Question

Quizplus · Accepted Answer

The internal growth rate is calculated as the retention ratio multiplied by the return on equity (ROE). The retention ratio is the portion of net income not paid out as dividends, which is $40/$50 = 0.8. The ROE is net income divided by equity, which is $50/$200 = 0.25. Therefore, the internal growth rate is 0.8 * 0.25 = 0.20 or 20.0%.

Last Year Axle Inc